January 20, 2011

Mass Murder is Not Business Interruption: A Legal Tale of September 11

For most of the past decade, claims and litigation arising from the hijackings and attacks of September 11, 2001, have worked their way through courts and conference rooms toward something resembling resolution. Most of those claims have been concluded at this point, but a few remain. One of those is the case of Cantor Fitzgerald & Co. v. American Airlines, still active in the U.S. District Court for the Southern District of New York. Financial services firm Cantor Fitzgerald had its headquarters in the top five floors of Tower One of the World Trade Center, which fell after being struck by American Airlines Flight 11 from Boston. Of the 2,977 non-hijackers killed in the attacks, 658—more than one-fifth of the total—were officers or employees of Cantor Fitzgerald. The American Airlines litigation involves Cantor Fitzgerald's claims against the airline for damages claimed to have been sustained because of the airline's claimed negligence in not identifying or stopping the hijackers.

This week, Judge Alvin Hellerstein issued a decision granting partial summary judgment in favor of the defendants, limiting the types of damages the plaintiff may be able to recover at trial. The case is largely being decided under New York law, but the applicable rules of law would be largely the same in any other state. For that reason, and because the ruling provides a window on a major pice of litigation that goes on largely ignored by those who are not parties to it, it warrants a post.

The claims surrounding the destruction of the World Trade Center towers fall roughly in to two categories: those that relate principally to personal injury or death and those that relate principally to property damage and economic loss. Of the injury and death claims, all but 95 were resolved through the Victim Compensation Fund established by Congress, rather than by court action. Of the 95 death and injury claims that went to litigation, all but one have now settled and the last is set for trial in June of this year.

Cantor Fitzgerald's claim is one of the 21 property damage cases, all but three of which were resolved in a mediation on late 2009. One of the non-settled property cases was subsequently ordered dismissed. A second has been largely resolved, with only limited issues remaining for trial. The last is the claim of Cantor Fitzgerald. Prior to the 2009 mediation, Cantor Fitzgerald had estimated its compensable losses at approximately $100 million; it arrived at the mediation with a revised estimate, raising it to nearly $1 billion. As Judge Hellerstein dryly notes in the introductory portion of his opinion, that shift in position "caused a breakdown in mediation efforts before they had even begun." It is that tenfold increase in claimed damages that is at the core of Judge Hellerstein's ruling this week.

From the outset, Cantor Fitzgerald has been seeking compensation for the destruction of its leasehold at the World Trade Center and the property and infrastructure at that location. Prior to the mediation, it had estimated those direct property losses at some $96 million. When it shifted position, Cantor Fitzgerald significantly reduced the property damage claim, to slightly more than $7 million, while simultaneously increasing its "business interruption" claim to a walloping $879 million, some seven times its original size.

The expansion of the business interruption claim was largely supported by Cantor Fitzgerald's expert witness, Gregory S. Thaler, whose report and deposition testimony adopted a "holistic" approach to the valuation, considering "all the damage that occurred to Cantor Fitzgerald that day," including the fact that when the plane struck it "killed people, it destroyed office space, it destroyed the books of business, it destroyed the relationships." Although Thaler and Cantor Fitzgerald attempted to link all of the heightened business interruption losses to the physical destruction of Tower One, the underlying premise of the recalculation became clear: Cantor Fitzgerald was seeking to recoup the business that it lost because the people who formerly provided the services and maintained the underlying relationships supporting the company's market share are no longer living.

In ruling that Cantor Fitzgerald cannot claim losses arising from the deaths of its officers and employees, Judge Hellerstein points to two core doctrines. First, long-settled New York law establishes that a defendant is only liable to a business for business interruption losses to the extent that defendant has caused direct physical damage to the plaintiff's property. Business losses caused by damage to some other property, or by damage to some other non-property interest, are not compensable:

The destruction of Tower One . . . destroyed Cantor Fitzgerald's leasehold to the top floors of the Tower and its property within that leasehold. Cantor Fitzgerald is entitled to claim damages naturally and probably resulting from the damage it suffered. These damages can include injuries to property, and to lost profits naturally and probably flowing from the injury to its property. But Cantor Fitzgerald cannot bootstrap this entitlement into a wholesale claim of business interruption damages not matching the corresponding duty of the [defendant].

Second, in New York as in most (all?) other states, the right to compensation for the death of a human being is purely a creation of statute. Each state's "wrongful death" statute specifies who can make such a claim—generally only the heirs or immediate family of the deceased—and what damages are permitted—generally only purely pecuniary losses, with no compensation for grief or other intangible harms. New York's wrongful death law grants no right to an employer to seek any compensation for the death of its employees. Judge Hellerstein holds that to the extent that the murders of its officers and staff are a necessary predicate to Cantor Fitzgerald's claimed business losses, the company is not entitled to compensation for those losses.

Cantor Fitzgerald is not the first business to try to plead around this rule by contending it is suing for a business loss, and not for the wrongfully caused deaths of its employees. . . . [But] it is clear that the major part of Cantor Fitzgerald's loss resulted from having lost the services of its deceased employees. This is evident in Thaler's report. New York law does not permit this holistic approach.

No one can deny the emotional and financial hurt suffered by Cantor Fitzgerald, and the families of its officers and employees. But as a matter of law, Cantor Fitzgerald's claim for damages, however theorized, may not include claims for lost profits resulting from the deaths of, and injuries to, it officers and employees on September 11.

Cantor Fitzgerald is directed to amend its claims to "eliminate the impermissible aspect" by February 28; a conference to set a trial date is now scheduled for early March.

For those who may be interested, I have uploaded a copy of the Court's full 21-page decision, here [PDF].

Comments

Question: was there life insurance on any of their employees. If so, would it also be considered somewhat fraudulent to ask for damages from the airline, or would that be recourse for the insurance company?
I'm sure the answers are obvious to many people, just not me.
Thanks for the interesting (recent for me) reading!
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